The Basics of Manufacturing Direct Identification Drawback
JM Rodgers specializes in many types of duty drawback, one of which is manufacturing direct identification drawback. When duty-paid imported material is used to manufacture a product and subsequently exported from the United States, companies may recover the US import duty paid by filing a duty drawback claim. However, it is necessary to trace and document the duty-paid imported material through the manufacture and export process.
The original intent of this duty drawback law was to encourage domestic production in the United States of products and articles for export. The legislation was aimed at stimulating foreign trade and assisting US manufacturers, industry, and US domestic labor markets.
Claimants under manufacturing drawback may, if approved, file retroactively, provided that the drawback claims are filed within three years of the date of export. For many companies, this initial recovery of duty can be quite substantial.
An Example of Manufacturing Direct Identification Drawback
Here’s a simplified example of how manufacturing direct identification drawback works:
Umbrella Widget Company imports 1000 motors and pays US Customs duties of $1000 (in this case, $1 per motor). Those motors are then shipped to a factory in Greenville, SC where they are used in the assembly of dishwashers with one motor each along with several other parts and electronics. After the dishwashers are fully manufactured, Umbrella Widget Company exports 500 of the winches to retailers in several foreign countries. Umbrella Widget can make a drawback claim that equals 99% of the duties originally paid to US customs for the motors that were exported in the assembled dishwashers. This is calculated as 0.99 x $500 = $495.00.
FOOTNOTE: This example is adapted from a similar example provided by NPLL Trade Law here.
The Law Behind Manufacturing Direct Identification Duty Drawback
Manufacturing direct identification drawback is defined in subsection 313(a) of the Tariff Act of 1930, as amended in the drawback law [19 U.S.C. Section 1313(a)]. This type of drawback is referred to as direct identification manufacturing drawback.
Here’s the exact language of the law:
(a)Articles made from imported merchandiseExcerpt From the Legal Information Institute
Upon the exportation or destruction under customs supervision of articles manufactured or produced in the United States with the use of imported merchandise, provided that those articles have not been used prior to such exportation or destruction, an amount calculated pursuant to regulations prescribed by the Secretary of the Treasury under subsection (l) shall be refunded as drawback, except that duties shall not be so refunded upon the exportation or destruction of flour or by-products produced from imported wheat. Where two or more products result from the manipulation of imported merchandise, the drawback shall be distributed to the several products in accordance with their relative values at the time of separation.
Required documentation for Direct Identification Manufacturing Drawback
In order to file for duty drawback under the direct identification manufacturing drawback provision you must have access to the files or data from the following documents:
- Import Entry Summary
- Import Commercial Invoice
- Import Packing List
- Bill of Materials
- Proof of Export
- Export Bill of Lading
- B3 (Export to Canada)
- Pedimento (Exports to Mexico)
- Export Commercial Invoice
- Export Packing List
Further necessary documentation for this type of drawback is defined in the drawback law 19 CFR 191.26 – Recordkeeping for manufacturing drawback:
(1) Records required. Each manufacturer or producer under 19 U.S.C. 1313(a) shall keep records to allow the verifying Customs official to trace all articles manufactured or produced for exportation or destruction with drawback, from importation, through production, to exportation or destruction.*https://www.law.cornell.edu/cfr/text/19/191.26
Other Types of Drawback We Handle
- Unused Merchandise Direct Identification
- Unused Merchandise Substitution
- Manufacturing Direct Identification
- Manufacturing Substitution
- Domestic Tax Paid on Alcohol
- Rejected Merchandise
- Petroleum Derivatives
- Packaged Goods
- Merchandise Processing Fees
- Harbor Maintenance Fees